Nvidia outshines AMD after chip sell-off with 75% gross margin

The chip sell-off erased more than $1 trillion in market value in a single session, but the divergence between Nvidia and AMD's fundamentals makes one a clearer buy.

Nvidia's adjusted gross margin of 75% exceeds AMD's 55% by 20 percentage points, reflecting a pricing power gap that has widened even as both stocks pulled back from their highs this month.

"Nvidia's data center business alone is now about 13 times the size of AMD's entire data center segment," according to the companies' latest quarterly filings, which show Nvidia's data center revenue climbing 92% to $75.2 billion.

Nvidia's fiscal first-quarter revenue rose 85% year over year to $81.6 billion, with guidance for the current quarter pointing to about $91 billion — a 95% increase. AMD posted 38% revenue growth to $10.3 billion, with data center revenue up 57% to $5.8 billion. Nvidia trades at about 31 times trailing earnings and 23 times forward earnings, while AMD trades at roughly 170 times trailing earnings and 74 times forward earnings.

The valuation gap means investors are paying a significant premium for AMD's potential market share gains — outcomes that are far from guaranteed as memory-chip cost inflation pressures margins across the industry. Nvidia added $80 billion to its buyback authorization and returned about $20 billion to shareholders in the quarter.

The sell-off in context

The rout began in early June after a lower-than-expected AI chip forecast from Broadcom erased more than $1 trillion in chip-stock value in a single session. Nvidia shares, at about $199, sit roughly 16% below their 52-week high, while AMD, at about $520, is within 8% of its own high. The broader sell-off also hit memory makers: Micron Technology fell 13% in a single session before rebounding after reporting record quarterly gross margins of 84.9% — the highest among major US tech companies, surpassing even Nvidia's 75%.

Memory-chip cost inflation is a growing concern for chip buyers. Apple Chief Executive Tim Cook told the Wall Street Journal that the iPhone maker faces "unsustainable" memory costs and will need to raise prices. Micron, which supplies high-bandwidth memory to Nvidia, AMD, and Google, said it expects the market to remain tight beyond 2027, with gross margins projected to reach about 86% in the current quarter.

Why margins separate the leaders from the challengers

Gross margin is the clearest indicator of pricing power in semiconductors. Nvidia's 75% adjusted gross margin reflects its full-stack platform advantage — hardware, software, and networking that customers find difficult to replicate. AMD's 55% margin, while improved from prior years, shows it remains the alternative rather than the default choice for AI workloads.

The growth gap reinforces the margin story. Nvidia is the larger company by a wide margin — its data center segment alone generated $75.2 billion in quarterly revenue — yet it is still growing faster. Nvidia's 85% revenue growth outpaces AMD's 38%, and its guidance for 95% growth in the current quarter suggests no near-term slowdown.

Valuation seals the comparison

After the pullback, Nvidia's forward price-to-earnings ratio of 23 looks undemanding for a company growing at nearly triple digits with 75% gross margins. AMD's forward P/E of 74 prices in years of flawless execution and significant market share gains — possible, but far from guaranteed.

Both stocks face common risks: dependence on AI infrastructure spending, tightening export rules on chips bound for China, and the possibility of further valuation resets. Hyperscalers including Alphabet, Microsoft, Amazon, and Meta started 2026 forecasting a 40% increase in capital expenditures, but after a strong first quarter, spending is now expected to rise more than 75% year over year, according to JPMorgan. That investment is juicing revenue for data center suppliers across the semiconductor supply chain.

For investors looking to buy the dip in chip stocks, the choice between Nvidia and AMD comes down to a single question: pay a premium for potential, or buy the leader at a discount. The numbers point to the latter.

This article is for informational purposes only and does not constitute investment advice.